I personally prefer the word "squad" to battallion, because the shorthand "batt" is confusable with the word "battle".
In terms of size, I think that the problem with BFME2's large squads wasn't so much the size itself, but pathing issues. I think it all depends on how it is managed. In terms of how the squad spreads itself out, that should be on a case-to-case basis. I think orcs make sense spread out, but cavalry should charge in lines, and a spear formation definitely should be a tight box.
I do believe size should vary from unit-type to unit-type and faction to faction. It might make a lot of sense to put phalanx in a big formation, but light cavalry in a small formation. I think it's all about what works best for gameplay and that unit type in specific.
Most games have a variety of features like variable starting resources and population limits, it might be cool if a squad size multiplier was also available, although that could cause balance issues with regards to heros, monsters, and other "non-squad" units.
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